Principles of Responsible Investment Annual Report 09
of the PRI Initiative
The PRI is an investor initiative in partnership with UNEP Finance Initiative and the UN Global Compact
n | PRI Annual Report | 2009 | Foreword from the Executive Directors of UNEP and the UN Global Compact
into the mainstream
In just three years the number This year marks the 80th anniversary of the great Wall Street Crash of
1929, and the public spotlight is again firmly fixed on the finance sector.
of signatories to the Principles for
The recent crisis has demonstrated that decisions made by financial
Responsible Investment has soared institutions have implications for entire economies. Thus the work of the
from 50 to 500, representing US$18 PRI Initiative to promote better risk management, transparency and good
trillion of assets and 36 countries. This governance has never been more important.
is a clear recognition by mainstream These efforts can help restore the trust and confidence in the markets
that have been so badly damaged by the financial crisis.
capital markets of the importance of
Throughout the last year, PRI signatories have used their influence to help
environmental, social and corporate
improve the ESG performance of companies in the UN Global Compact,
governance (ESG) issues to with shareholder engagements on issues such as disclosure, climate
investment processes. change and water scarcity. Signatories also launched the largest ever
recruitment drive for the UN Global Compact, writing to almost 9,000
listed companies urging them to participate.
The UN Environment Programme Finance Initiative (UNEP FI) has continued
its work in support of responsible investment, in particular through its
Property Working Group, Asset Management Working Group and PRI
in Emerging Markets project. Joint activities are underway to assess the
importance of environmental externalities to investors’ portfolios. Also to
explore how public financing mechanisms can be leveraged to promote
institutional investment flows into climate change mitigation and adaptation.
We also seek to bring a financial services and investor perspective to
UNEP’s Global Green New Deal/Green Economy Initiative. The departure
for both of these is that investing in a transition to a low carbon and
resource-efficient economy has multiple benefits from combating climate
change to catalyzing innovation and decent kinds of employment.
Addressing sustainability issues is too big a task for any individual institution
alone. These are collective action problems that need collective solutions.
Achim Steiner Through the PRI Initiative, the investment community is taking its place
alongside governments, corporations, consumers and civil society in a global
effort to replace unsustainable, short-term thinking with long-term solutions.
The United Nations is committed to being a full and determined partner
in meeting this challenge.
Achim Steiner Georg Kell
Executive Director Executive Director
United Nations United Nations
Georg Kell Environment Programme Global Compact
Message from the Chairman | PRI Annual Report | 2009 | 1
more relevant than ever
As the global financial crisis wiped billions from fund values, some
thought the momentum gained by responsible investment in recent
years would diminish. Some felt responsible investment was an ‘add
on’ that would be jettisoned in tough times. One commentator
suggested that the only shade of ‘green’ investors would now be
interested in was the ‘colour of dollar bills’.
These predictions have been proved wrong. Rather than these activities
being undermined, this crisis has catalysed additional investor interest in
responsible investment, with 160 new signatories – holding assets of
over US$5 trillion– signing up to the PRI between October 2008 and
Donald MacDonald May 2009. Responsible investment is now starting to be driven by
asset owners, and when times get tough, investment managers get
responsive to the needs of clients.
It has been a year dominated by the
Indeed, responsible investment is central to the recovery from this crisis.
largest financial crisis in a generation,
In March, 2009, the PRI Board released a statement on the financial
and the need for a better and longer- crisis which called on investors to embrace the PRI as a robust
term approach to investment framework to help the investment community avoid a repeat of the
management has never been more mistakes that led to the downturn. This statement links the practices
outlined in the PRI – enhanced analysis, active ownership, transparency
urgent. Responsible investment – with the failures that led to this crisis. Rather than being an ‘add on’,
offers the institutional investment responsible investment lies at the core of the solution.
sector a clear path forward. The full impacts of the crisis will take years to play out, and as the
world’s population and carbon emissions continue to rise, so does
the task facing the responsible investment sector.
There will surely be other bubbles and crises, including the emerging
climate crisis. The PRI Initiative is committed to driving the types
of changes in mainstream investment practices that will, at least,
encourage the type of business and investment activities that will see
them coming a bit earlier and seek to address emerging problems
before they get out of hand.
The PRI Initiative has seen tremendous growth, and in time, we hope
that these practices will have a real impact on driving sustainable,
Chair of the Principles for Responsible Investment
and Trustee, BT Pension Scheme
2 | PRI Annual Report | 2009 | Contents
Foreword from the Executive Directors of UNEP
and the UN Global Compact
Moving further into the mainstream Inside cover
Message from the Chairman
Responsible investment more relevant than ever 1
About the report 3
The PRI year in numbers 4
The Clearinghouse 6
In numbers 6
Driving change through collaborating online 7
Case Study: Why we use the Clearinghouse 8
A window into Case Study: Clearinghouse in practice 10
PRI in Emerging Markets and Developing Countries 12
the PRI Initiative In numbers
Moving into new markets
Case Study: Meeting a local need 15
PRI in other asset classes 16
In numbers 16
Beyond equities 17
Case Study: A view from the private equity industry 19
Further implementation support 20
Financial aspects of the Initiative 22
Looking ahead 24
To sign up 25
About the report | PRI Annual Report | 2009 | 5
About the report
This annual report provides a summary of the The Principles for Responsible Investment were drafted
by a group of the world’s largest institutional investors
progress of the PRI Initiative over the year since
and supported by a 70-person multi-stakeholder group of
our last annual report (1 June 2008 to 31 May experts from the investment industry, intergovernmental
2009). It provides a window into the activities of and governmental organizations, civil society and academia.
the Initiative, and how it is helping investors to It was a process coordinated by the United Nations
improve corporate behaviour on issues such as Environment Programme Finance Initiative (UNEP FI) and
the UN Global Compact and the PRI Initiative itself was
corporate governance, transparency, human
launched in April 2006 at the New York Stock Exchange
rights, climate change, and corruption. It also by the UN Secretary-General.
highlights how the Initiative helps its signatories The six interconnected Principles aim to act a framework
develop processes for incorporating ESG issues for global best practices in responsible investment.
across a variety of investment processes. They are:
We will incorporate ESG issues into investment
At the heart of the PRI Initiative are the various work streams 1 analysis and decision-making processes.
that support implementation, and this year’s report focuses
on three of these: We will be active owners and incorporate ESG
2 issues into our ownership policies and practices.
1. Collaboration among investors through the
PRI Clearinghouse We will seek appropriate disclosure on ESG
3 issues by the entities in which we invest.
2. The growth of responsible investment in emerging
markets and developing countries We will promote acceptance and implementation
4 of the Principles within the investment industry.
3. The application of the Principles beyond listed equities.
We will work together to enhance our
We also include details of the PRI’s many other work streams. 5 effectiveness in implementing the Principles.
The sister publication to this report, the PRI Report on We will each report on our activities and progress
Progress 2009, details the work the signatories themselves 6 towards implementing the Principles.
are doing to implement the Principles, highlighting, with
concrete examples, how investment processes are being
harnessed to enhance financial performance and deliver
The PRI Initiative remains indebted to our UN partner
agencies, UNEP Finance Initiative and the UN Global
Compact, for their unwavering support for the PRI.
We also thank all the signatories that participated in the
activities of the Initiative throughout the year. The PRI is
very much a community of investors working together
with the UN partners. This report – and the Report on
Progress 2009 – seek to showcase these efforts.
6 | PRI Annual Report | 2009 | The PRI year in numbers
The PRI year in numbers
Growth of signatories and AUM this year Locations of PRI signatories: 36 countries
From 362 signatories and US$14.778 trillion in April 08
to 538 signatories and US$18,087 trillion in May 09
Number of Signatories
Total assets under management of signatories:
Number of signatories
up 24% to 77
from emerging markets
or developing countries:
Active signatories on the Clearinghouse (by number of proposals)
CalPERS 21 AP1 3
Hermes 15 AP2 3
The Ethical Funds Company 15 Batirente 3
Nathan Cummings Foundation 11 Boston Trust Walden Asset Management 3
Amalgamated Bank 6 Creative Investment Research 3
Calvert 6 Domini 3
Insight Investment 6 Ethos 3
CalSTRS 5 IlMarinen 3
F&C 5 Phitrust Active Investors 3
Pax World 4 PGGM 3
USS 4 SHARE 3
The PRI year in numbers | PRI Annual Report | 2009 | 7
85% of signatories have policies that 34% of respondents said their
make reference to responsible investment responsible investment commitments
or ESG issues. were being translated into a plan of
action to a large extent
63% of asset owners now include RI/ESG elements in
contractual relationships with external managers.
Percentage figures on this page based on consolidated and approximate results of respondents to the PRI Reporting and Assessment process 2009.
8 | PRI Annual Report | 2009 | The Clearinghouse
The PRI Engagement Clearinghouse,
established in October 2006, is a world
first for the investment community.
It is a private online forum that enables
PRI signatories to work together to seek
changes in company behaviour, public
policies or systemic conditions. The
Clearinghouse enables individual
signatories to transform one
voice into the voice of many.
Total number of Clearinghouse postings since inception: 177
Number of Clearinghouse posts by month in year since last report
Jun-08 7 Sep-08 4 Dec-08 3 Mar-09 14
Jul-08 4 Oct-08 8 Jan-09 5 Apr-09 12
Aug-08 2 Nov-08 3 Feb-09 6 May-09 9
The Clearinghouse | PRI Annual Report | 2009 | 9
Driving change through
Through collaboration, signatories can pool their resources writing a joint letter to one or more companies expressing
and influence and achieve greater impact. The Clearinghouse concerns about an issue. These letters are often followed
now has around three full time staff working to coordinating up by meetings between the investors and the company.
investor collaborations. There are also public policy engagements, where investors
come together to form a common view on an area of
regulation or public policy, and then make those views
Improving company behaviour known to the policy makers.
Most engagements facilitated through the Clearinghouse
The postings in the Clearinghouse can be split into
are focused on improving company performance on ESG
roughly five types:
issues – a key aim of the PRI Initiative. But there have also
been numerous Clearinghouse posts which bring investors n Single-contact engagements: Postings representing
together to discuss emerging issues, engage with policy efforts to alert companies to an issue of investor concern
makers or seek support for shareholder resolutions. or promote better corporate conduct in a particular area.
These are most often joint letters, often targeting large
This year, nearly two thirds of PRI signatories logged into the
groups of companies.
Clearinghouse, up from around half in 2007. 84 signatories
have posted ideas for collaboration to the Clearinghouse since n Comprehensive engagements: More intensive
its inception. This year’s Clearinghouse activities reached engagements, often involving investors engaging in
almost 9,000 companies on four continents. The largest dialogue with companies over time, seeking specific
single engagement was the ‘Seoul Initiative’, which saw improvements in corporate behaviour.
a group of signatories worth US$5 trillion in assets write n Shareholder voting: Invitations to support or co-file
to over 8,400 listed companies asking them to commit shareholder resolutions, or vote in a particular manner
to the principles of the UN Global Compact. on resolutions, at company annual general meetings.
n Public policy and systemic issues: Engagements with
How does it work? regulators and other public policy-makers, and invitations
to support various higher-level investor initiatives.
Signatories can post ideas or proposals to the Clearinghouse,
n Exploratory discussions: Postings that open up
inviting others to collaborate. These postings may be as simple
discussion on future collaboration ideas or which share
as one investor asking others to join in a collaborative
research, opinions and information from individual
discussion of an emerging issue, or support a shareholder
proposal at a specific company’s AGM. It could involve
Number of companies sent at least one letter as
a result of collaborative engagements organised
through the Clearinghouse this year:
Number of companies that were the focus
of multiple-contact engagements launched
through the Clearinghouse this year:
10 | PRI Annual Report | 2009 | The Clearinghouse
“ The Clearinghouse enables individual
signatories to transform one voice
into the voice of many.”
Breakdown of the types of postings to the Clearinghouse To use the PRI Engagement Clearinghouse, signatories
this year develop a proposal for the engagement they would like to
Exploratory Single-contact undertake, with details for how it would be conducted,
discussions (15) engagements (5) expected outcomes, background information and any
Comprehensive associated documents. Other signatories are alerted to
the proposals through email updates, and they can choose
6% to participate, or simply peruse what peers are doing, using
the forum as a learning platform.
It is important to note that the Clearinghouse is an opt-in
forum, and engagements are undertaken in the names
of the investors themselves. Each engagement is led by
one or more investors, with the PRI Secretariat providing
Total administrative and organisational support. The Clearinghouse
13% 77 is simply a forum for investors themselves to work together
in an efficient and effective manner on an issue they see as
material and relevant to their portfolios.
One of the tools used to discuss emerging issues and
potential collaborations is the ‘webinars’. These online
44% seminars are held once or twice a month and in the last
year have discussed issues such as climate change, oil
sands, transparency and anti-corruption, labour standards
and controversial weapons. Between June 2008 and May
Public policy and Shareholder
systemic issues (10) voting (34) 2009 webinars attracted an average of around 40
signatories. The webinars on ‘sustainable real estate’
and ‘water sustainability’ were the most popular,
attracting 79 and 63 attendees respectively.
Why we use the Clearinghouse: This year the Guardians have been involved in several
collaborative engagements facilitated by the Clearinghouse
The Guardians of New Zealand to tackle issues such as forced labour in Brazil, investment
Superannuation (The Guardians) in Sudan and to asking listed companies to sign up to the
UN Global Compact.
These engagements were in line with our responsible
investment policy and in all cases we felt we could be more
effective by joining forces with other investors rather than
going it alone.
The appeal of the Clearinghouse is that it catalyses
collaboration. It’s a system that allows pension funds like
us to put some ideas forward, knock them around with our
peers, and if we come to a common position, take action.
The Clearinghouse | PRI Annual Report | 2009 | 11
“ The Clearinghouse is an opt-in forum,
and engagements are undertaken in
the names of the investors themselves.”
Below are some of the collaborative engagements facilitated n An engagement that encouraged major listed companies
by the Clearinghouse in the past year. Details of the results in Singapore and Hong Kong to improve their corporate
of these engagements can be found in the Report on governance and transparency in order to qualify for
Progress, 2009 and the following section on the PRI in inclusion in the FTSE4Good index.
emerging markets and developing countries.
n Letters to listed companies asking them to commit
n A collaboration launched in December 2008 to encourage to the UN Global Compact, resulting in more than
some of the world’s largest companies to sign up to the 100 new signatories to the Compact, including General
CEO Water Mandate, a UN Global Compact water Electric, PepsiCo, J.C. Penney and Merck & Co.
n A collaborative engagement to promote better and
n An ongoing engagement between a US$2.5 trillion more systematic ESG disclosure by emerging market
coalition of investors and companies with operations companies, focusing on South Africa, Brazil, South
in, or exposure to, Sudan – a country whose human Korea and India.
rights record is a subject of growing public and
n Letters from 36 PRI signatories, managing US$757 billion,
to all S&P 100 companies asking for material information
n A collaborative engagement to ensure companies that on how they protect and enhance labor rights for their
are participants in the UN Global Compact honour their US employees.
reporting requirements. In 2008, the engagement helped
n An ongoing collaboration between ten investors from
convince around one third of the 100 companies contacted
North America and Europe to engage with financial
to fulfil their reporting requirements.
authorities regarding regulations on acting in concert.
n A South American collaboration launched at the Brazilian
stock exchange asking all listed Brazilian companies to
supply information on how they monitor and prevent
slave labour throughout their supply chain.
For collaborative shareholder engagement to work, “The Clearinghouse is absolutely
investors need the behind-the-scenes support that the
Clearinghouse provides. For example, there needs to be core to what the PRI Initiative
guidelines and procedures in place to manage, monitor does. The PRI has some big plans
and measure the engagement and perhaps to translate
materials. There also needs to be coordination of roles
but it must take care to keep its
to keep costs down. The Clearinghouse provides that foundations solid by continuing
foundation and lets investors take it on from there. to nurture this important forum.”
Previous collaborations such as an engagement to minimise
inappropriate labour practices in the Brazilian iron and steel
industry has resulted in significant changes, including new
audit systems in a number of companies.
12 | PRI Annual Report | 2009 | The Clearinghouse
Clearinghouse The ESG issue
Around 3.5 billion people live in countries rich
in oil, gas and minerals. With good governance,
the exploitation of these resources can foster
economic development and reduce poverty.
However, when governance is weak, this process
can fuel corruption and conflict – as happened
most notably in Liberia in recent years.
This poses a clear threat for companies in
the extractive industries, which can become
associated with the ill effects of weak governance
and consequently suffer hostility from the local
Case study and international community. Companies also
risk having their contracts repudiated, as
happened in Liberia when democratic elections
brought an end to the civil war. Secrecy
“Efforts of this kind begin to introduce compounds the problem, as local citizens have
sound practices of fiscal governance, little idea how much wealth is being generated
which will, in turn, help to stabilise from the resources that lie below their ground.
societies, promote prosperity and
benefit the investment climate for In 2002, in response to this, the Extractive
Industries Transparency Initiative (EITI) was
Karina Litvack, Head of Governance & Sustainable Investment, F&C
announced as a coalition of governments,
“We know that our position as leader companies, civil society groups, investors and
in the steel industry brings unique international organisations created to strengthen
responsibilities. In no places is this governance by improving fiscal transparency
duty more pertinent to our operations and accountability in the extractives sector.
than in the two EITI-Candidate
countries of Liberia and Kazakhstan.”
Mr. Lakshmi Mittal, Chairman and CEO, ArcelorMittal, 20 Jan 2009
The Clearinghouse | PRI Annual Report | 2009 | 13
The Investor view: The Company view:
F&C Asset Management ArcelorMittal
As a strong supporter of the PRI, F&C believes companies At ArcelorMittal we consider transparency, quality of disclosure
stand to benefit commercially from a prudent, far-sighted and clear communication with shareholders to be among the
approach to sustainability and therefore engages with the most important aspects of good corporate governance.
companies in its clients’ portfolios to promote improved
We believe our responsible business practices help create
practices where appropriate. Our interaction over the last
shareholder value, and in November 2008 we held our first
four years with mining and steel company ArcelorMittal
roadshow specifically focused on responsible investment.
(formerly Arcelor) illustrates this approach.
This gave us the opportunity to present, and test, a recently-
As a founder and active supporter of the EITI, F&C asks revised CR strategy to over 30 European fund managers
companies to promote adoption of the Initiative. Where they and analysts.
have operations in EITI-supporting countries, we ask them to
From the roadshow it became apparent that a key issue of
assist in its successful implementation, and publish audited
concern for a number of investors was the EITI. A particular
statements of the taxes, royalties and bonuses they pay to
country of focus was Liberia, which has been devastated by
governments, who should simultaneously publish audited
years of civil war and where attracting responsible foreign
statements of the revenues they receive. By shining a
investment is vital for urgent reconstruction requirements and
spotlight on these vast payment flows and allowing potential
long-term development. Since May 2007 ArcelorMittal Liberia
discrepancies to come to light, the EITI helps deter corruption
– the first major foreign investor in the country since the civil
and mismanagement in resource-rich countries.
war – has been an active member of the local Liberian EITI,
F&C encouraged ArcelorMittal to become an active and a formal Group-wide commitment was on the horizon.
supporter of the EITI, and in particular to help facilitate the However, an urgency to make a full commitment, or indeed
Initiative’s operational success in the key countries of promoting a wide knowledge of the initiative throughout
Liberia and Kazakhstan, where it is a major player. the Group, was at the time not a key priority.
In addition to raising the issue with the company in one-to- However, a number of investors, particularly F&C
one meetings, F&C also spearheaded a PRI Clearinghouse Management, were able to articulate why it was important
initiative on the issue that attracted the support of 25 fellow for us to make the further commitment. This feedback
signatories. With the support from these signatories, F&C gave strength and weight to our internal approach, using
wrote to ArcelorMittal’s CEO, Lakshmi Mittal, to focus his this investor dialogue internally to engage and educate
attention on Liberia and Kazakhstan. The response to these senior management on the EITI’s importance and value,
efforts arrived in early 2009 with the company’s decision and ultimately hastening the process of formalising
to become the 40th company to endorse the Initiative. our commitment.
14 | PRI Annual Report | 2009 | PRI in Emerging Markets and Developing Countries
PRI in emerging markets
and developing countries
The PRI in Emerging Markets and
Developing Countries Project (PRI in EM)
works with investors to encourage better
management of ESG issues in these
markets in order to both enhance investor
returns and drive sustainable development.
PRI in EM is funded by the Swedish
International Development Agency and
managed by UNEP Finance Initiative.
Growth in PRI Emerging Market
signatories since May 08:
by 24% to 77
Total participants at PRI outreach
workshops in nine countries: 500+
PRI in Emerging Markets and Developing Countries | PRI Annual Report | 2009 | 15
“This year, for the first time, the
Moving into PRI in EM project established
PRI country networks in Brazil,
new markets South Korea and South Africa.”
In the last year, the project has raised awareness a. Reaching hundreds of investors
about responsible investment with investors Over the course of 2008 and early 2009, the project has
focused on emerging markets where there is currently little
across four continents and signed up many new
or no responsible investment awareness or PRI presence.
signatories. The project also aims to help PRI
This year, the PRI in EM Project presented at over 25
signatories to encourage responsible business responsible investment outreach workshops and mainstream
practices in developing countries. investment conferences in countries including Russia, Austria,
Indonesia, Malaysia, Singapore, Thailand, Brazil, Ecuador,
The PRI in EM team has provided translations Egypt, South Africa and United Arab Emirates. Initial
meetings were also held with investors and relevant
of several PRI publications including the PRI
stakeholders in India, Israel and Turkey ahead of planned
brochure, monthly newsletter for signatories workshops there in 2009/2010.
and the PRI Reporting and Assessment tool
b. Providing implementation support to signatories
alongside other implementation support.
This year, for the first time, the PRI in EM project
established PRI country networks in Brazil (see next page),
South Korea and South Africa. The goal of these networks
is to bring PRI signatories together in these markets to
support them with implementing the Principles and
address material ESG issues in the local context.
In Korea and Brazil, local network coordinators were
recruited to coordinate joint investor activities locally
and translate PRI materials.
Number of emerging
markets engaged through
PRI outreach activities:
PRI signatory implementation
networks launched in Brazil,
South Korea and South Africa.
16 | PRI Annual Report | 2009 | PRI in Emerging Markets and Developing Countries
“The EM project has raised awareness about
responsible investment with investors across four
continents and signed up many new signatories.”
Contributing to Clearinghouse
activities in emerging markets
A number of Clearinghouse activities have also been of the PRI Clearinghouse, additional investors have joined
supported through the PRI in EM project. Investor the EM disclosure project focusing on promoting greater
collaborations in emerging markets over the last year have sustainability disclosure by Indian and Russian companies.
included a major engagement with Brazilian companies
Regular emerging market webinars have proved an
listed on Bovespa (the Brazilian stock exchange) aimed at
important tool in encouraging informal collaboration and
eradicating slave labour in Brazil, an engagement on labour
dialogue on responsible investment in emerging markets.
rights with construction companies in the Middle East,
As well as discussing some of the engagements listed above,
collaborations regarding forced child labour in Uzbekistan,
this year’s topics have included integration of ESG issues in
investor dialogue with companies operating in Sudan, and
emerging markets, active ownership in emerging markets,
asking companies to participate in the UN Global Compact.
RI in conflict-afflicted countries, infrastructure investment
The Emerging Markets Disclosure Project, which has been opportunities in developing countries, and the launch of
supported through the Clearinghouse since 2007, has the pan-African SRI Index. Between 40 and 70 investors
become a major work stream across four countries. This from around the world join these webinars each month.
project brings investors together to engage listed companies in
emerging markets to encourage greater systematic disclosure c. Finding solutions to systemic problems
of ESG performance. As part of this project, PRI in EM was In April 2009, the PRI Initiative in collaboration with UNEP
involved in developing a survey to assess current ESG Finance Initiative officially launched the Universal Owner
practices applied by investors when investing into emerging project (see below) which aims to demonstrate a clear
markets. Results of this survey will be published in mid-2009. financial and economic rationale for collective shareholder
In South Africa, there are ongoing engagements with engagement on issues related to economic externalities
companies that either fell off of or did not qualify for the (i.e. an impact from an economic transaction which affects
JSE SRI Index in 2008. In Brazil, a workshop is being parties not involved in the transaction itself). The PRI
organised to bring investors and companies together to Initiative has appointed Trucost to conduct the first stage
discuss corporate sustainability reporting. With the help of this project with the results due in late 2009.
Universal owner, universal solutions?
PRI signatories collectively represent more than US$18 together to improve the performance of the economy
trillion in assets. Given the size of many PRI signatories and (through addressing externalities) as a whole. Indeed this
the extent of their diversification, returns to these funds is an important part of fulfilling their obligations to their
(and PRI signatories overall), are more closely correlated members, beneficiaries, clients and customers.
with the performance of the economy as a whole than to
The aim of the PRI/UNEP FI Universal Owner project is to
any particular company or sector. Therefore by investing
explore how the most economically harmful ESG externalities
broadly in capital markets, these funds ultimately internalise
involving corporations can be identified and then reduced
both negative and positive externalities that are generated
through collaborative shareholder engagement by the
by companies and their ESG practices. This ‘universal
owners of these corporations. Externalities to be analysed
ownership’ combined with the long-term horizons of many
will likely include greenhouse gas emissions, degradation of
investors provides a strong rationale for investors to work
ecosystem services, pollution and unsustainable resource use.
PRI in Emerging Markets and Developing Countries | PRI Annual Report | 2009 | 17
Brazil is the world’s tenth-largest economy, with the country’s
278 pension funds holding combined assets of about
US$185 billion. The PRI Brazil Network was launched in
November 2008 in response to strong signatory demand for
a local Portuguese language platform. The Network helps
Brazilian signatories to put the Principles into practice and
collaborate on a range of ESG issues.
PREVI, the largest pension fund in Brazil, has taken a lead in
managing this network, which has now created three working
The PRI Brazil
groups on ‘engagement’, ‘recruitment’ and ‘integration’.
The main focus of this group is to use investor influence
to improve the quality of corporate sustainability reporting
in Brazil – in particular to engage with those companies
that do not report at all or have poor disclosure of ESG
performance. The group works closely with the Global
Reporting Initiative (GRI) in Brazil. The group also supports
engagements on issues such as eliminating slave labour in
the supply chain and ESG performance in the construction
and agribusiness sectors.
Integration group Recruitment group
This group works to share methodologies for integrating The aim of this group is to promote responsible
ESG issues into investment analysis in the Brazilian context. investment among investors that are not yet
The goal is to create a common methodology for integrating PRI signatories. To facilitate recruitment and
ESG issues into valuations in ways that can be applied by implementation, the PRI Secretariat is working
all Brazilian signatories. This process will include the on overcoming the language barrier by making
identification and selection of those ESG indicators that key PRI materials available in Portuguese. For
are most relevant and material for investors in Brazil.
example, there is now a Portuguese ‘sign-up kit’,
that contains key information about the PRI.
The three steps of the PRI/UNEP FI Universal Owner Project
Step 1: Identify and prioritize economic externalities “The Brazil Network was
related to corporate behaviour, that, if addressed,
could have a positive impact on the economy.
launched in response to
Step 2: Model the impact of these externalities on a
strong signatory demand
hypothetical, highly diversified portfolio, and for a local Portuguese
demonstrate the financial benefits institutional language platform.”
investors could derive if these externalities
were internalised over the long term.
Step 3: In collaboration with leading practitioners,
develop concrete shareholder engagement
strategies to act on these externalities.
18 | PRI Annual Report | 2009 | PRI in other asset classes
“The PRI Initiative is supporting signatories in a dialogue
on responsible investment in other asset classes,
focusing initially on property and private equity.”
Number of signatories with predominately
private equity or venture capital activities: 29
PRI in other asset classes | PRI Annual Report | 2009 | 19
Providing guidance materials for
responsible property investment
Many PRI signatories invest across a broad set of The UNEP FI Property Working Group (PWG) and the PRI
have continued to collaborate on responsible property
asset classes. Consistent with their commitment
investment following the release in early 2008 of a
as PRI signatories, signatories are now looking at guidance document on implementing the PRI in
applying responsible investment policies beyond property portfolios.
their listed equities portfolios into property, private Recent PWG work has included an article distributed to
equity, fixed income and even hedge funds. all PRI signatories to articulate the key differences between
responsible investment in equities and in property. This
The PRI Reporting and Assessment process this year revealed practical note focuses on factors unique to property as
the scale of the challenge of applying responsible investment an asset class (such as tenancy rights) and aims to help
across all asset classes, with a large number of signatories investors understand the unique discipline of responsible
stating they do not yet integrate ESG issues beyond listed property investing.
equities. While there are now a small number of responsible In 2009-10, the PWG will release a series of toolkits
fixed income and hedge funds products available, just under designed to offer practical guides to help further embed
half of all signatories stated that they do not integrate ESG responsible property investing in daily institutional practice.
issues into these asset classes at all at this point. The first toolkit, Committing and engaging, was released
To help tackle this challenge, the PRI Initiative is supporting in the second quarter of 2009. Other projects in the
signatories in a dialogue on responsible investment in other pipeline include a report on tenant engagement strategies
asset classes, focusing initially on property and private equity. and best practice, as well as activities related to global
The property work is led by the UNEP FI Property climate change policy.
AUM of PE signatories: US$226.78 billion
AUM of pure-play property fund signatories:
20 | PRI Annual Report | 2009 | PRI in other asset classes
Integrating responsible investment
principles into private equity
The PRI’s private equity steering committee has brought In July 2009, the PRI Initiative also published Responsible
together investors (limited partners), private equity houses Investment in Private Equity: A Guide for Limited Partners
(general partners) and trade associations to provide guidance to help PRI signatories apply the Principles to their PE
to limited partners and raise awareness on ESG within the allocations. This toolkit helps Limited Partners to develop
general partner community. their own approaches at both the pre-investment (due
diligence and legal documentation) and post-investment
A major step-change came in February, when members of
stages (monitoring and engagement). Future Reporting
the Private Equity Council (PEC) adopted a set of guidelines
and Assessment processes will help the PRI Initiative assess
on responsible investment. The PEC membership includes 13
whether this Guide has helped signatories integrate ESG
of the world’s largest buy-out groups. The guidelines, which
into their private equity investments.
cover environmental, health, safety, labour, governance and
social issues, were developed by the PEC after a dialogue
with the PRI’s private equity steering committee. The PRI
committee and PEC will meet twice annually to discuss the
guidelines and their implementation.
Other national associations, including the British and
Australian venture capital and private equity associations,
have now established Responsible Investment working
groups. As the sector has recognised the importance of
ESG issues to investment and corporate performance, we
have also seen a number of high profile private equity firms
sign up to the PRI including Kohlberg Kravis Roberts & Co
LLP, Abraaj Capital, Cinven, Actis and BC Partners.
“A major step-change came
in February, when members
of the Private Equity Council
adopted a set of guidelines
on responsible investment.”
PRI in other asset classes | PRI Annual Report | 2009 | 21
As one of Europe’s most established private equity A view from
managers, Doughty Hanson has spent the last
few years developing the tools and resources to the private
implement our engagement across a range of ESG
issues. A significant milestone in our emerging
ESG strategy took place in June 2007 when we
became one of the first private equity managers
to sign up to the PRI. Doughty
Our decision to become a signatory was rooted in our
belief that the PRI provided a practical framework to help Hanson
us better understand the full opportunity set for our various
responsible investment initiatives. Our interactions with PRI
staff and other signatories have helped us across the full
spectrum of ESG engagement and were particularly useful
when we were developing the text for our ESG policy.
Another tangible benefit of being a signatory has been the
annual PRI Reporting and Assessment survey. The online Case study
questionnaire may be a little daunting to complete, but it
provides an opportunity for Doughty Hanson to perform a
comprehensive annual ESG audit, helping us identify the steps
we have already taken and, more importantly, the work we
still need to carry out to fully integrate responsible investment
into our investment analysis and ownership practices.
As part of our commitment to the PRI, Doughty Hanson
sit on the PRI’s Private Equity Steering Committee which
promotes greater awareness of the role of ESG within
private equity. The work the committee undertakes
provides an invaluable collaborative forum for discussion
between asset owners and managers to tailor PRI best
practice within a private equity context. The recently
published Responsible Investing in Private Equity: A Guide “Our decision to become a
for Limited Partners is just one notable example of the type signatory was rooted in our
of practical work that the PRI can help produce.
belief that the PRI provided
a practical framework to
help us better understand
the full opportunity set for
our various responsible
22 | PRI Annual Report | 2009 | Implementation support
In addition to the three programmes profiled – This exercise is not without its challenges. Some signatories
feel it is too prescriptive, while others feel it should do more
the Clearinghouse, the PRI in Emerging Markets
to hold signatories to account. The PRI Secretariat, working
Project and PRI in other asset classes – there are with the Assessment Working Group and incorporating
several other work streams of the PRI that offer feedback from many signatories, has attempted to strike
support to signatories in their implementation a balance by developing what we believe is a useful
learning and accountability tool while keeping the
of the Principles. reporting burden manageable.
The process was enhanced in 2009 through one-hour
PRI in Practice knowledge base verification calls with 100 signatories. These calls are not
Signatories to the PRI are very diverse – regionally and in purely for verification of responses, but are also a chance to
terms of investment styles – so there can be no one-size- discuss emerging responsible investment approaches with
fits-all approach to implementing the Principles. PRI in signatories, provide general feedback about where things
Practice provides signatories with a library of high-quality are heading, and identify best practices or interesting
and practical advice on how to integrate ESG issues into challenges that can be featured in PRI in Practice. Ideally,
their day-to-day business. all signatories will have a verification call with PRI staff
once every three years.
With so many potential avenues to explore, the site has not
yet covered the whole spectrum of implementation activities For the full Report on Progress 2009 visit
across all asset classes. However, it is emerging as one of www.unpri.org/report09
the world’s leading resources on responsible investment
implementation and now contains best-practice cases studies,
interviews and examples from over 50 signatories. In addition
Enhanced Research Portal
to written documents, the site also features podcasts and Most investment decision-making in the world today relies,
videos of signatories speaking about their own experiences to some extent, on sell-side and other specialist research
in implementing responsible investment. There is also a providers. However, the supply of high-quality research on
calendar of responsible investment events. ESG issues, appropriate for mainstream fund managers,
remains patchy, particularly in markets that are not as
PRI in Practice is hosted on a password-protected site and
familiar with responsible investment.
is available only to signatories.
The PRI Enhanced Research Portal (ERP) is an attempt to
PRI Reporting and Assessment tool help remedy this problem by broadening the work of the
Enhanced Analytics Initiative and taking it to a wider, global
The PRI Reporting and Assessment process is one of the audience through the ever-growing PRI signatory base.
most important activities of the Initiative. It is an annual,
online questionnaire that all investor signatories must For signatories, the ERP will make it easy to find out what
complete. The responses are analysed and the results sent ESG research is available in different markets around the
out individually to each signatory. The tool provides a way world from a variety of providers. For brokers and
for signatories to measure progress against their peers and independent research providers, it provides an opportunity
learn from each other. The process also provides signatories to showcase their research to a greater audience, and
with easy way to report on their responsible investment therefore, potentially more clients.
practices, thereby fulfilling Principle 6. The aim of this simple portal is therefore to significantly
The Reporting and Assessment process also enables the improve the quality and availability of ESG research.
PRI Secretariat to identify and showcase best practices from Increased use and demand for ESG research should
within the signatory body, which can then be reflected back help drive better investment decisions.
though implementation resources. The aggregated results
of the assessment are featured in the annual Report on
Progress, which is published alongside this document.
Implementation support | PRI Annual Report | 2009 | 23
Small Funds Initiative
Small funds often are very resource-constrained, and this
is particularly the case for responsible investment activities.
However, it is still possible for small and resource-constrained
funds to be responsible investors, particularly where they
pool their resources, and work together. The PRI Small Funds
Initiative was established to support the needs of these funds,
and a dedicated staff member of the PRI Secretariat has been
recently allocated to this work stream.
It aims to provide implementation guidance to small
fund signatories, to increase their ability to participate in
shareholder engagements and to examine the potential for
pooling resources to secure cost-effective services (eg voting,
engagement, ESG research) that, to date, have only been
available to larger funds.
PRI on YouTube
As of 2009, videos are available of signatories discussing
a range of issues around PRI implementation. Seven short
videos are currently hosted on the PRI channel and have
already garnered over 2,000 viewings.
PRI on YouTube
PRI Academic Network The first PRI Academic Network conference was held in
September 2008 in partnership with the European Centre for
As part of broader efforts to increase knowledge about Corporate Engagement (ECCE) in Maastricht, Netherlands.
responsible investment practices, the PRI Academic PRI signatories and top academics from around the world
Network works to strengthen cooperation between came together to present research papers focused on
signatories and the academic community. responsible investment. The next conference in September
With a membership of 230 academics, investment 2009 will be co-hosted by Carlton University in Ottawa,
practitioners and policy makers, the PRI Academic Network Canada. The 2009 conference will be supported by a special
represents a diverse array of research interests from around edition of an academic journal on responsible investment.
the world. The network aims to provide implementation In May 2009, the PRI and the Danish Government’s Centre
support to PRI signatories through promoting and funding for CSR (CenSa) formed a strategic partnership to develop
research and events that generate practical and relevant the PRI Academic Network and further drive practical
responsible investment research. The PRI Initiative also research on responsible investment. This joint venture will
contributes to the development of future generations of combine efforts and take forward the agenda of the Danish
scholars and practitioners, co-hosting the Young Scholars Government’s 2008 Princeton Conference on responsible
Finance Academy in partnership with the Swiss-based investment. A core component of this will be the funding
oikos Foundation. of research prizes in 2010 for papers of excellence.
24 | PRI Annual Report | 2009 | Implementation support
Financial aspects of the Initiative
PRI voluntary contributions were US$ 1,083,530 in 2008-2009.
This reflects the growth in numbers of signatories and a small
increase in the proportion who contribute.
Contributions were made by 165 signatories, or 32% of the total,
compared with 25% in 2007-2008. We warmly thank those
signatories for their continuing financial support of the PRI.
PRI Voluntary contributions
Year Amount Signatories Signatories contributing
2006-07 US$ 340,000 181 50
2007-08 US$ 710,000 331 88
2008-09 US$ 1,083,530 505 165
The financial crisis did not appear to affect signatory Continued growth in contributions, backed by our reserves,
contributions in the 2008-2009 financial year, as most has given us the confidence to carefully expand operations
contributions came in before October 2008. It is too early and hire extra people including two Clearinghouse staff, a
to assess the impacts of the crisis on 2009-2010 but early communications manager and a number of other project
signs are reassuring. and support staff.
Long-term budgeting within the context of voluntary The 2008-2009 budget was based on expected income of
contributions is challenging. For this reason, we have used US$775,000. Our year end expenditure totalled US$654,348.
conservative projections of income to plan our expenditure. About 15% of the originally-planned expenditure has been
We have also sought to build up a financial reserve as quickly carried over to 2009-2010.
as possible, to provide a buffer to protect the initiative from
unforeseen events. Our long-term policy is to maintain
a reserve which will provide sufficient funding for six
Implementation support | PRI Annual Report | 2009 | 25
Income and expenditure summary
Actual¹ 2008/09 Budgeted 2009/10
Income Voluntary contributions 1,083,530 1,077,000
Grants 40,042 196,416
Event income 68,568 65,625
Interest 3,934 2,925
Total income 1,196,074 1,341,966
Expenditure Management and overheads 328,435 643,295
Implementation support² 151,568 717,536
Signatory relations 15,154 188,960
Recruitment 159,191 177,432
Total expenditure 654,348 1,727,223
Forecast total expenditure 1,986,308
Surplus/(deficit) for the year 541,726 (644,342)
Reserves Opening 541,079 1,082,805
Closing 1,082,805 438,491
1 Still subject to audit
2 Includes clearinghouse, PRI in Practice, the workstreams
3 Budgeted at 15% of expenditure
The main challenges ahead include financing the expanding closely and maintaining a healthy level of reserves (budgeted
work programme, securing long-term financial security, and at US$438,491) going forward which is in line with the
managing currency exposures. Our strong reserves policy initiative’s reserves policy. We will, of course, slow down
means we are in a good position to weather any difficulties expansion if the financial position of the initiative is not
arising from the current financial crisis and can continue as strong as projected.
to expand the work programme.
We will be focusing on delivering high-quality implementation
We are projecting a substantial deficit of US$644,314 support services to signatories. In particular, this means a
for 2009-2010. This is due to our decision to invest in the stronger direct focus on implementation support, including
2009-2010 expansion of the work programme as part of the Clearinghouse, PRI in Practice, and other work streams,
the PRI five-year strategy. We can fund that by drawing which will account for 42% of our planned expenditure. It
on previously built-up reserves. We will be monitoring this also allows us to increase our activity in signatory relations
and dedicated IT tools.
26 | PRI Annual Report | 2009 | Looking ahead
The PRI Initiative is uniquely positioned to make The PRI will also provide a platform for investor engagement
with the public policy community, with the establishment of
a huge impact in the investment industry globally
the Public Policy Network, a group of public policy makers
in the future, thanks to the backing it has from a who recognise the potential for investors to contribute to
large number of mainstream institutional asset public policy goals.
owners and managers, and the legitimacy that There will be a greater emphasis on Principle 6, and the
comes with its United Nations support. But the transparency of signatories’ responsible investment activities.
The Reporting and Assessment process is also a key priority,
potential of the PRI Initiative as a real driver of
as it is the main tool for understanding and responding to
change within the industry globally and across all the needs of signatories, identifying best practices, and
asset classes has yet to be fully realised. There are developing training materials based on signatories’ needs.
This process also underpins the credibility and legitimacy
still many areas of the world, and many parts of
of the Initiative and will ensure that the PRI remains an
the investment industry generally, that are yet to initiative that signatories are proud to be associated with.
take up the responsible investment challenge. In summary, we expect significant growth of the PRI
Initiative in coming years, and look forward to providing
In early 2009, the PRI Board and Secretariat set out to
an increasing variety and quality of implementation
develop a vision for the PRI Initiative over the next five years
support activities across a much wider set of responsible
to take the Initiative to a new level of professionalism, service
and coverage. It is proposed that the Initiative become the
global hub of responsible investment collaboration, best
practice, capacity building and outreach, seeking to cover –
with concrete implementation support – all regions with
established capital markets, and the gamut of asset classes
and responsible investment approaches. Where appropriate,
this expansion would be done in collaboration with partner
organisations, particularly those with local knowledge.
It will have an in-house ESG think tank supporting the
Clearinghouse, and provide a network for investment
professionals, economists, service providers and issue
specialists to identify the most important ESG issues, and
then develop concrete collaborative investor activities to
address them. It will have comprehensive implementation
resources to help investors integrate ESG issues into all
relevant areas of their portfolios. The focus will remain on
higher-level, systemic issues such as universal owner issues,
which no individual company can make a strong business
case to address.
Looking ahead | PRI Annual Report | 2009 | 27
To sign up…
If your organisation would like to become a
signatory then please visit www.unpri.org/sign
or email firstname.lastname@example.org for further information.
A letter signed by a CEO or equivalent is needed that
contains the following:
n A statement confirming your organisation’s approval
of the Principles, reasons for your decision and the
expectations you have from becoming a PRI signatory
n For asset owners and investment managers, a
commitment to take part in the PRI’s annual
Reporting and Assessment process.
n A description of your organisation, approximate
assets under management and the category of
n Full contact details of your main PRI contact.
Our UN partners
United Nations Environment Programme Finance Initiative UN Global Compact
(UNEP FI) Launched in 2000, the UN Global Compact brings business
UNEP FI is a unique public-private partnership between together with UN agencies, labour, civil society and
UNEP and the global financial sector. UNEP works with governments to advance ten universal principles in the
over 170 banks, insurers and investment firms, and a range areas of human rights, labour, environment and anti-
of partner organisations, to develop and promote linkages corruption. Through the power of collective action, the
between sustainability and financial performance. Through its Global Compact seeks to mainstream these ten principles in
comprehensive work programme encompassing research, business activities around the world and to catalyze actions
training, events and regional activities, UNEP FI carries out in support of broader UN goals. With more than 5,200
its mission to identify, promote and realise the adoption of participating businesses from over 130 countries, it is the
best environmental and sustainability practice at all levels world’s largest voluntary corporate sustainability initiative.
of financial institution operations.
More at: www.unglobalcompact.org
More information: www.unepfi.org
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